Fiat Chrysler’s Stock Value Goes Up After it Announces its Ferrari Spinoff

The share price of Fiat Chrysler was up by 14% to a 6 month high of 8.70 Euros; it rose even higher to 9 Euros after it announced that the company planned to spinoff Ferrari into a separate company and issue a mandatory convertible bond. Ferrari also plans to compensate investors with higher yields due to issuing of convertible bonds.

This spin-off will allow Fiat Chrysler to cash in on the brand value of Ferrari and separate the luxury car models from the mass car producer company. The Company’s CEO in a statement said that it was imperative that FCA and Ferrari went their separate ways due to the merger of Fiat and Chrysler and its listing on New York Stock Exchange earlier this month.

Fiat Chrysler will be listing the Ferrari stock in both the U.S stock markets and the European stock markets. 10% of the entire shares of Ferrari will be sold to the general public while the rest of the shares will be distributed among the shareholders of Fiat Chrysler itself. This will allow Fiat to raise its capital level to allow it to support its expansion plan.

This expansion will allow the company to increase its profit levels by five times over the course of next five years. It seems that the directors of Fiat Chrysler have finally sorted out their capital worries by making a simple yet complicated decision – a decision which will increase the valuation of Fiat stock.

The performance of Fiat Chrysler in the competitive market has been far from what was expected. Having a net debt of around 11.4 Billion Dollars, it needed a strong financial performance to straighten out its balance sheet. However, the operating profit came out to be lower than it had projected while there was also an increase in the debts it was already carrying. With a weak future in both Europe and Latin America, it was quite necessary that Ferrari with an equity value of around 6 billion euros was made into a separate entity in order to protect and make use of its brand value that it had established over decades.

Ferrari happens to be the most valuable asset that Fiat Chrysler owns and using it to raise capital will also allow it to expand into Asia, which happens to be the weakest spot for Fiat Chrysler because it fails to outperform Japanese manufactures in the region. It is widely believed that Ferrari can stand as a sole entity and this is exactly what the directors of Fiat Chrysler are going to test in their efforts to bring about a change in their fortunes. Despite being a low volume producing brand, Ferrari has a lot of name and trust in the high-end market. The capital from its share sales will certainly be in billions because there will be many investors running after it. All in all it has to be seen whether the split will bring a positive influence or not.